More Government Spending Spotlights the Case for Gold Miners

The Biden Administration, fresh off the $1.9 trillion stimulus bill, is already eyeing another $3 trillion package. All that government spending could stoke inflation, putting mining assets such as the Sprott Junior Gold Miners ETF (NYSEArca: SGDJ) in focus.

SGDJ tracks small cap gold miners, but weighs its components based on revenue growth and price momentum. The ETF focuses on price momentum, which helps identify leading junior gold miners driven by factors like new discovery, mine development, or joint ventures.

“The factor-based Index methodology seeks to emphasize companies with the strongest relative revenue growth and price momentum, two factors that historically have been strong predictors of long-term stock performance for junior gold miners,” according to Sprott.

“The recent $1.9 trillion stimulus bill will add to the wave of unprecedented money printing that we have seen in the United States,” according to Seeking Alpha. “This could very easily lead to inflation once the economy reopens and people begin spending their money.”

SGDJ 1 Year Total Return

Gold and Inflation

The small cap SGDJ uses a momentum-based strategy that “emphasizes small- to mid-sized gold producers with the highest revenue growth and exploration companies with the strongest stock price momentum,” according to the issuer.

“President Biden is currently planning another massive infrastructure bill with a price tag of between $2 trillion and $4 trillion. While Bloomberg reports that at least some of this spending will be financed by tax hikes, the truth remains that at least some of this spending will almost certainly grow the national debt and result in a significant amount of newly-printed money sloshing through the economy,” adds Seeking Alpha.

The current inflation outlook bodes well for SGDJ upside.

“One of the biggest reasons why every investor should hold a position in gold is because of the protection that it provides against inflation. Economists generally define inflation as a general rise in prices in an economy but it’s caused when the money supply grows faster than the production of goods and services in the economy,” concludes Seeking Alpha.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.